"Its EBIT for Q4FY14 grew 0.7% QoQ to Rs. 32,810 mn, while the EBIT margins expanded 50 bps QoQ to 25.5%, mainly due to benefits of improved utilization (74.4 vs. 74.1%), & savings due to variable pay structure, which was partially offset by INR appreciation. With higher other income (Rs. 8,510 mn) on exchange gain (1830 mn vs. gain of 1190 mn in Q3), its APAT grew by 4.1% QoQ to Rs. 29,920 mn. Effective April 2014, the company has given a wage hike of 6-7% to offshore & 1-2% to onsite employees. The wage hike along with higher visa cost will have a negative impact of 250-300 bps on its Q1FY15 EBIT margins. Going forward, with focus on cost optimization & improving utilization the company is optimistic of maintaining its FY14 EBIT margins during FY15. We also expect Infosys to deliver ~24% EBIT margins during FY15E. The company won 4 large deals of TCV of ~USD 700 mn (2 in Europe, 2 in US), while deal pipeline remained stable.”

“Considering its Q4FY14 Growth, clients’ budget on their annual IT spending & current Revenue visibility, the management provided its USD Revenue growth guidance for FY15 which is expected to be at 7-9%. Although the guidance is muted & well below the Nasscom’ FY15 IT industry growth guidance of 12-14%, it still looks reasonable in the context of challenges faced by Infosys in terms of several senior level exits in recent past along with higher attrition level (18.7% on LTM basis). The company expects the deal momentum to continue and pricing to remain stable. In our view, Infosys is likely to achieve the upper-end of its FY15 USD Revenue growth guidance. Infosys has ended FY14 with strong net cash position of USD 5 bn, while its RoCE & RoE still remained at impressive levels of 34% & 25% respectively. The debtor’s days are lower at 62 days. The board has also increased its dividend policy by increasing the payout ratios to up to 40% of net profits from 30% payout. We believe the current balance sheet position & dividend payout policy will provide some respite to the shareholders until Infosys regains its growth momentum.”

In view of its FY15 guidance & current business outlook, we have reduced our FY15E Revenue & APAT estimates. We have also introduced our FY16E estimates. Going forward, we expect its FY15E & FY16E Revenues to grow by 8.6% & 12% respectively, while expect its APAT to grow by 8.5% in FY15E & by 13.2% in FY16E. We have valued the stock at 16x its FY16E earnings. The CMP of Rs.3,157 discounts its FY15E & FY16E Earnings of Rs.206.2 & Rs.233.4 by 15.3x & 13.5x respectively. We change our rating to ‘Accumulate’ on the stock with price target of Rs.3,735,” says Sushil Finance research report.

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